"High Interest Rates and High Inflation Ease... Signs of Domestic Demand Improvement Appear"
In the third quarter of this year, South Korea's economy grew by only 0.1% compared to the previous quarter, and the government has assessed that uncertainties have increased in achieving this year's growth forecast of 2.6%.
On the 24th, Lee Seung-han, Director of the Comprehensive Policy Division at the Ministry of Economy and Finance, said at a briefing on the preliminary GDP figures for the third quarter held at the Government Complex Sejong, "Uncertainties in the economic trend for the fourth quarter have increased," adding, "We will closely examine changes in geopolitical conditions in major countries such as the United States and uncertainties in the IT industry outlook."
He further explained, "Although it is true that global trade volume has improved this year compared to last year, overall uncertainties in export conditions seem to have increased," and "We need to observe whether the flow of exports and other factors in the fourth quarter will show positive or negative results." The government plans to indicate whether it will revise the growth forecast in the 2025 Economic Policy Direction to be announced in December. Lee added, "The government had presented a growth forecast of 2.6%, but it is difficult to judge the economic trend based solely on the third quarter."
Regarding the contribution of net exports (exports minus imports) recording -0.8 percentage points, which pulled down the growth rate by nearly 1 percentage point, he diagnosed, "This was due to weakness in the non-IT sector." Lee said, "There were temporary factors such as export declines in July and August caused by strikes at General Motors (GM) and Hyundai Mobis parts suppliers' affiliates," adding, "However, we expect these to be compensated through additional work in the fourth quarter." He also explained, "The year-on-year export volume growth rate recorded 6.5%, which is considered a high figure," and "Looking at the year-on-year total export growth rate by quarter over the past 10 years, it is evaluated at about 3.2%, so this is more than twice that level."
Domestic demand was assessed to have increased the growth rate by 0.9%, following the initially predicted direction. Specifically, facility investment contributed 0.6 percentage points, private consumption 0.2 percentage points, and government consumption 0.1 percentage points. Lee said, "The improvement in domestic demand does not seem to be limited to this quarter," adding, "As high interest rates and high inflation ease and corporate earnings improve, private consumption and facility investment are expected to improve." However, he explained, "Construction investment was constrained by the impact of high interest rates, with sluggish orders centered on real estate project financing (PF), which is showing effects with a lag of 4 to 6 quarters, limiting the improvement trend."
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